The opportunities to borrow money are endless in the year 2020. Within a matter of days or even hours, (at times) loans can get approved according to the credit record of the borrowers. Many small businesses are always looking for additional sources of finance to run their business over a long time period. In such cases, loans become the optimal finance sources that can only be profitable if paid back on time.
There is still a lot of people do not know about loans and do not even plan on knowing anytime soon. This is mainly because they hardly pay attention to the details about loans. Most of the times, entrepreneurs make impulsive decisions where they feel the urgency to borrow money. They forget to do their research about loans and its types because their interest lies behind the borrowing part.
To increase the chances of obtaining loans at lower rates of interests, it is vital to learn about them in advance. Besides running a new business, if you cannot keep up with competition because of low finance, then taking loans is a safer option. It can be a safer option, but it is not necessary to be the easiest way to borrow finance. However, with adequate knowledge about loans and its types, borrowing a reasonable sum of money can become easier as well.
Numerous lenders are offering loans suitable for your business. Some of the lenders operate online as well, where they will provide you with certain loan packages. In the end, it is up to you whether to borrow money from a particular lender or not.
The smart way to make a final decision about borrowing money is through being well-prepared. When you know what is going to happen next, you will also have the idea about how to handle it. This is precisely why you should be learning about the different types of business loans. Without further ado, let us find out the different kinds of business loans available in the business sector.
1. Business Term Loans:
Business term loans are different from traditional business loans as they do not require any collateral from the borrowers. They can be taken for short and long-term purposes, with the interest rates ranging from 8% to 30%. The good thing about business term loans is that you are not inquired about the purpose of borrowing. There are some basic terms and conditions that are required by the lenders. For instance, they check the credit score, monthly income, and the complete financial performance of the business. Only on the basis of that, business term loan will be offered to the borrower. Business term loans can be borrowed on larger amounts, and they only require a couple of days to get approved. This is why most of the people go for this type of business loan in times of need.
2. Business Line of Credit:
A business line of credit is pretty similar to a credit card, but there is one significant difference between them. It can be processed to the borrowers even if they have lower credit scores. There is a particular limit of the amount being borrowed, but it is good enough to last for a long time. Also, the credit can be quickly drawn whenever there is a need. As soon as the credit is paid back, more amount can be withdrawn with interest paid on it. The repayment time is approximately one year with the average rates of APR ranging from 7% to 25%. A business line of credit is a flexible option for funding with loan approval taking no more than a few days.
3. SBA Loans:
Small Business Administration is out there, working in full swing for the welfare of the small start-ups. Usually known as the SBA loans, up to $5 million can be borrowed via this type of loans for funding small businesses. Commercial banks give out SBA loans frequently, with other online lenders doing the same. Not just that, but SBA loans are financed by the USA government, reducing the APR rates for the borrowers. Since it is backed up by the state, lenders have full confidence of gaining back the amount they have given to the entrepreneurs. SBA loans are also associated with lower than usual interest rates, with only 5% to 13% interest charged on loan.
4. Merchant Cash Advance:
It is a simple method to borrow money in exchange for a predicated percentage of the transactions made on the credit card. There are no APR rates to consider, but a pretty straightforward approach to calculate the total amount the borrower owes to the lender. Just multiply the amount of loan you have borrowed with a fixed number between 1.14 and 1.48. After increasing the amount, you will be able to find out how much you actually owe. Also, the merchant cash advance does not indicate a fixed time to pay back the loan. The loan can be paid back bit by bit until the whole amount has been repaid. This type of loan usually benefits those businesses which have a poor credit score.
5. Invoice Factoring:
Here, unpaid invoices are sold to the invoice factoring company in exchange of 60-90% payment in advance. This might sound tricky, but it is not in reality. While selling off the invoices, the company takes over the responsibility of collecting money from the clients. The borrowers are not really borrowing money, but making a settlement with the company which will deduct some fees for invoice factoring. The company will keep the 10 to 40% of the payment and give the rest to you, minus the expenses that have to be paid.
The possibilities of getting a business loan are out there to explore. Now that you know about the different kinds of business loans try to make a wise decision while getting one. Compare your options beforehand and find out which type of loan is more beneficial for your company.